A Society Built From The Bottom Up, Not The Top Down

‘Democracy cannot survive in an excessively free market and containing the market is the task of politics. To ignore that is to court fascism.’

– Karl Polanyi, The Great Transformation: The political and economic origins of our time, Beacon Press Boston, 2001

In the year 2020, the 40-year rise of neoliberalism smashed into economic and social reality. The perils of smaller government, market fundamentalism, lower wage and higher profit shares, and the power of big money in politics was laid bare.

We learnt yet again, as political scientist Felicia Wong pointed out in the Boston Review, that ‘markets are important but they are not the sum total of our economic or social institutions; that markets alone cannot sufficiently reward, distribute or innovate, and that government will always be required to lead the transformation of our society’1 or as economists Mariana Mazzucato and Roberto Skidelsky suggest, ‘When push comes to shove, states – not private companies – are the primary economic actors’.2

We’ve learnt this lesson, of what we now call old neoliberal thinking, the hard way over the past 130 years: in the 1890s Depression, in the slump following the First World War, in the Great Depression, in the aftermath of the Great Recession.

The Second World War and its aftermath saw the creation of the welfare state in Britain and across much of Europe to act as a buffer between communism on the left and fascism on the right. The Great Depression ushered in Roosevelt’s New Deal, which through massive stimulus and direct job creation schemes staved off economic collapse.

In Australia, prime ministers John Curtin and Ben Chifley’s post-war reconstruction policies were revolutionary. The embrace of full employment and the White Paper it inspired led the world with investment in housing and infrastructure, the creation of the Commonwealth Employment Service and vocational training and settlement schemes for returning soldiers. During the Great Depression, one of my predecessors as treasurer, Ted Theodore, fought the notion that governments were powerless to act and alleviate the scourge of mass unemployment. He failed. But Curtin and Chifley were determined not to repeat the mistakes of the Great Depression.

Chifley’s post-war actions of Chifley mirrored our nation’s story a story of nation building anchored in the lives of ordinary people rather than the privileged elites represented by other parties. At their core was the notion that equality could not take a back seat to the pursuit of growth, that economic equality must drive prosperity, rather than being an afterthought to it. This creed underpinned the actions of subsequent Labor governments from Whitlam to Hawke to Keating to Rudd and to Gillard.

Inevitably there were tensions over the size and degree of government intervention but Australian Labor has never embraced the ‘Third Way’ ideology of minimum social safety nets and deregulated labour markets evident in the United States and Great Britain. A strong vibrant public sector, working with and alongside the private sector, was seen as every bit as important as any piece of national infrastructure or private industry. The purpose was to grow the economy to uplift working and middle class people and preserve economic mobility. In short, the power of government was seen as a positive force to transform the lives of ordinary people.

More than once, Labor has been called on to lift employment and forge a path out of crisis. This time we are not so lucky, with a conservative government still hankering for a ‘snap-back’ to old-fashioned neoliberal policies.

Now is the time for a new generation of activists to draw strength from this history and to revitalise the contest of ideas. COVID-19 has shone a light on the stark inequalities entrenched by neoliberalism.

From the end of the Second World War until the elections of Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States, in Western countries the gap between rich and poor narrowed as prosperity grew. It was the pay-off for the defeat of fascism, the ‘30 glorious years’ as the French called them.

From 1980 onwards the world became a place of stunning inequalities. In that time the bottom 50 per cent captured 9 per cent of total income growth, while the top 1 per cent captured 28 per cent.3 That’s why it’s so alarming to hear the current Treasurer suggesting Reagan and Thatcher had solutions we might apply now.

As we witness the American dream decaying and the rise of the authoritarian right across the world, we are finally seeing the foolishness of neoliberalism that has gradually eroded social democracy post-Reagan and post-Thatcher in many countries across the Western world.

The Reagan/Thatcher mantra of lower tax, small government; lower wage share, higher profit share – or as the economist Richard Denniss describes it, ‘the right-wing ratchet’ – has systematically destroyed essential services in many countries, starving them of revenue. Simultaneous wage suppression has eroded the living standards of large sections of the workforce.

The long arc of history will harshly judge this race to the bottom on tax and wages. It’s weakened public sectors ,making them ill-prepared to respond to political and economic upheaval, and it has enslaved and wasted a large proportion of our workforce.This pandemic will entrench existing inequalities and further erode the bargaining power of working people.

The age of extreme inequality has created the age of extreme politics: a dodgy property developer in the White House, Brexit and fascist parties rising across Europe.

In countries like the United States and United Kingdom, a lack of revenue has hollowed out the ability of government to respond effectively. Fortunately for Australia, successive Labor governments and our union movement did not embrace neoliberalism, and have preserved the social contract. But conservative governments during this period never wavered from their determination to try to destroy large slabs of our social and industrial safety net, particularly Medicare, national superannuation and workers’ rights. And they are still at it in the middle of a pandemic!

Since 2014 the Liberals have squeezed pre-tax income through wage suppression and eroded post-tax income through cuts to the social safety net alongside more regressive income taxation.

As we entered this pandemic the Australian economy was already in a structural downturn with a falling wage share of national income. With the coalition promising further tax cuts for higher income earners and a ballooning national debt, the need for more revenue and a more resilient public sector is now on display day by day.

Now is the time to mount the argument about adequately funding essential services as an economic good, not just as a social benevolence. It’s time to acknowledge that the drivers, the cleaners and shop assistants are essential workers and entitled to a dignified living wage.

Covid-19 has exposed the absurdity of paying chief executives 200 times the average earnings of their employees, as we’ve learned yet again that wealth creators are the ordinary income earners, not the entrepreneurs and plutocrats.

The pandemic demonstrates tax and public expenditure, along with wages and industrial relations, are the most important issues shaping the type of economy and society we aspire to.

A Labor vision for the 21st century to tackle inequality and to create a society where the working class doesn’t miss out must onclude:

  1. Stronger bargaining rights and a stronger voice for working people across all institutions in our society.
  2. Progressive taxation to distribute wealth and opportunity,
  3. A genuine nation-building industry policy, driven by clean energy; and
  4. Political reforms to break the grip of big money in politics, including limits on campaign expenditure.

When historians look back at what happened globally between 1980 and 2020 they will certainly conclude that strong, growing, vibrant unions and a strongly progressive tax system are the two best antidotes to tackle the poisonous impacts of rampant wealth and income inequality. They will see that a fairer society is the best medicine to treat the political polarisation being experienced across the developed world.

So as we re-imagine our future and peer through the looking glass of this pandemic, social democrats have to convince people that the power of government to transform their lives for the better is real and in their hands.

The reconstruction of a modern social democratic state can’t be funded on debt and credit alone. Our political opponents will constantly argue for regressive taxes, knowing their imposition will place a burden on those least able to afford them. They will say that money in the taxpayer’s pocket is better than money in the government’s pocket, hoping no-one notices the bulging pockets at the top. The pandemic contradicts their central argument.

In 2015 even the International Monetary Fund (IMF), once a bastion of neoliberalism, concluded that a declining proportion of gross domestic product (GDP) going to low- and middle-income earners was a handbrake on growth and higher living standards for all. Their empirical work shows conclusively that when the benefits of growth are concentrated, growth is weaker, and when the benefits are more fairly shared growth is stronger.

There is no better time to mount the argument that a progressive tax system where the wealthy pay more and where workers are paid fair wages is the path to prosperity. In essence it builds validation that we need an equal society not just because we are kind but because it builds a strong society, and that a prosperous working and middle class is a source of growth, not a consequence of it.

So does this crisis create the conditions for transformational change? Is this the opportunity to dismantle the old thinking of the trickle-down model – tax cuts for the wealthy, deregulation for the powerful and wage suppression for the rest? Certainly COVID-19 has reminded us all of the importance of social safety nets, of a job for all paid at fair rates, and just how fragile our democracy could become if wealth, income and race inequality is left to the market.

For Labor to win the next election, this is a time to be optimistic and idealistic. There is no doubt that government, working with the private sector, must have a much greater role in job creation and support and in these circumstances a new social contract may well attract the support that was lacking for Labor in the 2019 Federal election.

What has been extraordinary in the early stages of this crisis has been to watch the Coalition reject, embrace and then reject again substantive fiscal stimulus as a means of political survival, rather than belief, conviction and substantive policy. One day it’s a $130 billion-plus fiscal stimulus, the next day it’s ‘we can’t spend too much borrowed money’, except of course if it’s for defence or big business tax cuts.

Labor’s response must firstly embrace fiscal policy to eliminate labour under-utilisation and achieve true full employment. Full employment is a non-negotiable objective for the labour movement. There should be no higher goal for the Labor Party and the trade union movement in a time of high inequality than obtaining and sustaining full employment.

Government must commit to guarantee every willing worker a job, not necessarily by hiring them directly, but by managing the overall economy through expansionary fiscal and monetary policies, trade and industrial policies and active labour market policies.

This is not a recipe simply to expand the expenditure side of the budget, it is entirely consistent with budget repair, especially if it focuses on restoring fairness and efficiency to the tax and expenditure systems, two of the key pillars to build a fair and prosperous economy and society.

Labor understands that without basic economic equality, legal equality, racial equality, and gender equality are fictions. Economic equality is vital if these other worthy goals are to have real meaning.

Good jobs are an essential element of freedom and critical to any social democratic platform. Sustained full employment, underpinned by a generous minimum wage, is a central part of a decent, productive society.

In order to succeed, the progressive movement has to be a broad movement. It has to include not just the progressive middle class, but also working people and their unions. It has to talk about jobs – who has them, what they pay and what conditions they come with.

In the 2019 election we put forward a comprehensive progressive agenda but it lacked an overall narrative. That combined with a category-five cyclone of abuse from News Limited, and more than $100 million spent by mining magnate Clive Palmer, allowed the Liberals to run a tax scare campaign that falsely claimed low- and middle-income earners would lose as Labor closed gaping tax loopholes to spend on health, education and child care.

Progressive taxation, decent wages and the social contract are the foundations that makes aspiration possible. Without these underpinnings aspiration is the dream most people have to tell their children to forget.

Progressive taxation has never been class warfare; it was created to counter the class warfare that ripped the world to pieces during and after the Great Depression. We simply cannot have a prosperous economy when a shrinking share of the national income goes to working-class and middle-class Australians. The economist John Kenneth Galbraith once called conservatism ‘the search for a superior moral justification for selfishness’. And the constant attempts by conservatives to demonise mainstream tax policies as ‘anti-business’ is one social democrats cannot afford to let stand.

The old-thinking trickle-downers claim that redirecting resources to the rich at the top of the income and wealth scale is the best chance of sharing with everybody else. A rising tide lifts all boats, they like to say. Being a surfer, I happen to know a bit about tides. Tides never rise from the top down. They rise from the bottom up.

There has never been a better opportunity to dispel the myths of trickle-down economics and present a clear and compelling argument for a fairer and prosperous society. A society built from the bottom up, not from the top down.

The Hon. Wayne Swan served as the Treasurer of Australia for nearly six years, including three years as Deputy Prime Minister. He was one of the longest serving finance ministers in the G20 and was awarded Euromoney Finance Minister of the Year in 2011. He is the author of Postcode: the Splintering of a Nation and The Good Fight: Six years, two prime ministers and staring down the great recession. He is the National President of the Australian Labor Party.

1. Felicia Wong, ‘The post-liberal world is already here’, Boston Review, 26 June 2019.
2. Mariana Mazzucato and Robert Skidelsky, ‘Toward a New Fiscal Constitution’, Project Syndicate on Point, 10 July 2020, www.project-syndicate.org/onpoint/new-fiscal-constitution-job-guarantee-by-mariana-mazzucato-and-robertskidelsky-2020-07?barrier=accesspaylog.
3. World Inequality Database WID (2017), wid.world.

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